As consumers become used to, and increasingly embrace, life lived digitally, financial institutions (FIs) of all sizes must prepare for seismic shifts in how customers access financial services, communicate with their FIs and make payments.
For firms such as FIS, she said, the question has always been how to take a “bite” out of cash, and how to move low-value transactions away from paper bills and coins and toward debit and credit.
That shift over the past few months has caught at least some FIs unprepared — and scrambling to catch up.
When the coronavirus first started to take root, she said, there was still a trend toward banking, and physical services done in person for those companies.
Back then (and it seems a lifetime ago), Carrera said individuals were still calling into call centers and venturing into branches and drive-up tellers.
Dusting Off What’s On The Shelf
But once lockdowns and shelter-in-place orders went into full effect, she said, it became apparent that some firms had to address some levels of functionality that had been lacking, such as being able to check balances and purchase histories and to dispute transactions. In a way, these FIs have gone back to dust off what has already been on the technological shelf.
“We’re busier than ever with turning on these products and services that we’ve been trying to push,” Carrera said.
Drilling down a bit into various FIs, she said that credit unions (CUs) have done well in making the leap toward financial services done in bits and bytes, and that community banks are still “coming along” in transitioning to the digital realm.
As Carrera noted, there’s a difference between having a payments or service functionality in place and integrating it into a suite of offerings and service models.
In just one example, she pointed to the availability of “skip a payment” plans, which have been around for a long time and have, in the wake of the pandemic, been widely offered (and embraced) by customers.
“That was something that a lot of [FIs] did not realize how to manage,” said Carrera, which forced them to grapple with the impact of reduced APRs and extended payment terms. Partnering with FIS has helped to reduce those challenges. Of the 4,000 FIs that are part of the FIS Credit roster, she said, about 700 have used FIS to offer skip-a-payment options.
Elsewhere, at least for now, FIS is seeing continued impact among community FIs, as those institutions have been hit by small- to medium-sized businesses (SMBs) shuttering. Carrera noted that the diversification in those companies’ portfolios is not as wide as, say, Chase’s or Bank of America’s.
She added that the commercial card side of the business has “tanked” as travel volumes disappeared.
Moving Toward Contactless
Among the more permanent shifts, said Carrera, is the pivot toward payments that don’t involve handling cash, which is causing (health-related) jitters among consumers and merchants alike — when there’s face-to-face commerce at all.
As she told Webster, “This was always the discussion within the FIs: Do we just leapfrog into mobile payments and forget about contactless? Do we invest in contactless?”
The answer has been decided in favor of both options. Although it takes time to get a contactless program running and certified, she pointed out that the pipeline for such programs is quite full.
In addition, the adoption of Apple Pay and other mobile wallets is starting to show traction as curbside pickup is becoming more prevalent across any number of verticals, especially among younger consumers.
The Credit Landscape
As to the state of credit itself, Carrera said that at the beginning of the pandemic, “we were concerned with: Does everyone have enough available credit? So, we reached out to our banks” to gauge utilization and to initiate a credit line increase program.
But within a matter of weeks, those credit line increases stopped. FIs began to realize that the economic fallout would be long-lived. The banks went into a more protective mode of thinking, by extending payment terms and reducing APRs.
With a nod to how people are paying as they conduct commerce online, Carrera said there has been a bit of a horse race between debit and credit payments. There was at least some surge in transactions when stimulus payments hit. Those payments, she added, are being used to make minimum payments on credit cards, or for debit transactions (as those checks came via direct deposits and could be drawn upon immediately).
“We do see a bit of a shift to credit,” she added, “and I have a feeling that today, it is from some of the folks who are not employed any longer and are looking to extend credit and revolve.”
Carrera also noted that a bit less than half of the credit portfolio is now revolving. She said the industry hasn’t yet seen peak credit levels, but utilization is creeping up.
… And Some Glimmers In Retail
As to what consumers are buying with those stimulus payments, across debit and credit activity, alcohol remains a top seller, as are bread and baked goods. Carrera said that pet-related goods are also selling well — and, to no one’s surprise, groceries.
Retail is starting to show some rebound, albeit off of steep drops.
“It’s definitely decreased by over 50 percent,” she said — but in some cases, consumers have been buying clothes or other goods, “and it’s not just the Amazons of the world.”